Basel Accord

Basel Accord

Agreement concluded among country representatives in 1988 in Switzerland to develop standardized risk-based capital requirements for banks across countries.

Basel Accord

An agreement on international banking regulations dealing with how banks handle risk. The Basel Accord focuses mainly on credit risk; it divides banks' assets into five categories according to how risky they are. The five categories are assets with no risk, 10% risk, 20%, 50% and 100%. All banks conducting international transactions are required under the Basel Accord to hold assets with no more than 8% aggregated risk. The Accord was promulgated in 1988.Banks in most G-10 countries have implemented it since the early 1990s. It is now considered largely outdated and is in the process of being replaced by Basel II. It is also called Basel I.

From the above discussion it is pretty much clear that though overall Basel capital regulations has decreased the risk taken by banks by decreasing non-performing loans, however this reduction is not consistent across all Basel accords, especially Basel I has not the reduced the risks taken by banks.

Says HE Hamood Sangour Al-Zadjali, Executive President, CBO, "A well calibrated approach to banking sector reforms by the CBO such as adoption of risk-based supervision of banks, implementation of Basel accords and the development of modern payment and settlement system has led to the emergence of a strong and resilient banking system over the years.

The range of topics in this well-researched and well-written book include optimizing value-at-risk and daily capital charges, managing value at risk under the Basel II Accord, sovereign insolvency procedures, collective action clauses in international sovereign bond contracts, a review of empirical studies on collateral and credit rationing, and capital requirements, business cycle fluctuations, and the Basel Accords.

The changes have been driven by the current credit crisis, which has highlighted current inadequacies in the regime itself based on the so-called Basel accords reached at international level in the Bank for International Settlement (BIS).

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